Question 1

What is customer acquisition cost and how do you work out payback?

Accepted Answer

**Customer acquisition cost (CAC)** is what it costs, on average, to acquire one paying customer. **Payback period** is how long that customer takes to earn the money back.

**Calculating CAC.** Total sales and marketing spend over a period, divided by the number of new customers acquired in that period.

The common error is including only advertising spend. A fully loaded CAC includes salaries of marketing and sales staff, agency fees, tooling, content production and commissions. Blended CAC — total spend divided by all new customers, including organic — is different from **paid CAC**, and businesses frequently quote the flattering one.

**Why CAC alone tells you nothing.** A CAC of £500 is excellent for a customer worth £5,000 and fatal for one worth £200. It is only meaningful against **lifetime value (LTV)**, and the widely cited rule of thumb is an **LTV:CAC ratio of 3:1 or better** — below that, margins are too thin to fund operations; far above it, you may be underinvesting in growth.

**Why payback period is often the more useful number.** LTV is a projection, sometimes over years, and it depends on retention assumptions that may be wrong. Payback is measured in cash you have actually received.

**Payback = CAC ÷ monthly gross margin per customer.**

A CAC of £600 with £100 monthly gross margin gives a six-month payback.

**Why this matters more than profitability on paper.** A business with a 24-month payback and rapid growth is consuming cash constantly, because it pays to acquire customers long before they repay. Many businesses have failed while technically having positive unit economics, simply because the cash cycle outran the funding. Payback determines how fast you can grow without external money.

**Use gross margin, not revenue** — the point is cash contribution after delivery costs.

**Watch CAC rise with scale.** The cheapest customers are acquired first; CAC almost always increases as you expand beyond the most responsive audience.

Question 2

What is customer lifetime value, and how is it actually calculated?

Accepted Answer

The total profit you expect from a customer over the whole relationship. It is the number that determines how much you can afford to pay to acquire one — and it is calculated wrongly more often than

Question 3

What is the difference between CPM, CPC, CPA and ROAS?

Accepted Answer

They are four ways of expressing what advertising costs and returns, measured at different points in the chain. CPM — cost per mille (thousand impressions). What you pay to have your ad shown a

Question 4

What is the difference between an agency retainer, a project fee and a commission model?

Accepted Answer

Three ways of paying for marketing services, each creating different incentives — and the incentive structure, more than the headline rate, determines what you actually receive. Retainer. A fixed

Question 5

What is the difference between organic and paid reach?

Accepted Answer

Organic reach is the number of people who see your content without you paying for the distribution. Paid reach is the number who see it because you bought the impressions. The distinction matters

Question 6

How do loyalty programmes actually make money?

Accepted Answer

Rarely through the loyalty itself. Most programmes earn through a combination of margin funded by suppliers, changed purchase behaviour, unredeemed value, and — for the largest schemes — selling the

Question 7

What is churn and why does it matter more than growth?

Accepted Answer

Churn is the rate at which customers stop paying you over a period. It is the counterweight to acquisition, and it determines whether growth compounds or leaks away. Two measures, and the difference

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